Office Review: Dublin became the third most expensive city for premium office space with prime D2 and D4 rents reaching €538 per sq m (€50 per sq ft), writes Edel Morgan
The disparity between the city centre and suburban office markets in Dublin grew ever further in 2005, with Dublin 2 and Dublin 4 accounting for over 40 per cent of the total take up. This figure could well be closer to 45 per cent by year-end, if several high profile deals are signed.
Dublin became the third most expensive city for premium office space with prime Dublin 2 and Dublin 4 rents reaching €538 per sq m (€50 per sq ft) and other central areas hitting the €455-€484 per sq m (€42-€45 per sq ft) mark - the IFSC in Dublin's north inner city is renting at around €430 per sq m (€40 per sq ft).
According to James Mulhall of CBRE Gunne, a deal under negotiation will set a new benchmark rent of €592 per sq m (€55 per sq ft) when finalised, although he remains tight lipped about the details.
Declan O'Reilly of HT Meagher O'Reilly describes 2005 as " a very interesting year, with a lot of pre-let activity in particular".
The supremacy of Dublin 2 can partly be explained by the 10,000sq m (107,639sq ft) flagship Bank of Scotland office at St Stephen's Green. The bank in turn sublet 3,839sq m (41,323sq ft) at its former premises, Pinebrook House on Harcourt Street, Dublin 2, to the Department of Justice, Equality and Law Reform.
In Dublin 4, the south docklands has been a huge success, stealing the IFSC's thunder. Grand Canal Harbour, the 25-acre former Bord Gáis site, which has already attracted such high profile commercial names as Beauchamps, O2 and McCann Fitzgerald, looks likely to add Binchy solicitors to the list. It looks set to sign up for 2,011sq m (21,646sq ft) of space at Liam Carroll's Gasworks development on Barrow Street where Google took an additional 3,548sq m (38,190sq ft) in Gordon House.
The suburbs have been less buoyant with rents as low as €110-€270 per sq m (€10-€25 per sq ft) in some locations. Not all fringe locations were casualties, however. The south suburbs fared reasonably well with rents averaging €250 per sq m (€23 per sq ft).
Sandyford and Dundrum, in particular, were boosted by the Luas and the availability of high quality office space. Avaya signed a deal to consolidate its two locations into a 2,707sq m (29,138sq ft) facility in block A of the Atrium building in Sandyford, at a rent of €269 per sq m (€25 per sq ft).
Mulhall says Sandyford is no longer perceived as just an industrial estate "but has emerged as a town, helped by its proximity to the Luas and Dundrum".
But while the market has improved there, lettings are dependant on flexible lease terms and generous incentives.
The north and west suburbs were less successful, although one of biggest office deals this year was clinched by Liffey Valley office park in Lucan, where Advance Medical Optics leased 2,300sq m (24,757sq ft) from developers Grosvenor O'Callaghan properties. Liffey Valley has been a slow burner since its launch some years ago, despite its location beside the M50 intersection, but has succeeded in attracting big names, like Texaco. Another west Dublin coup was at Blanchardstown Corporate Park where Ebay took 3,432sq m (36,942sq ft) of additional space.
Demand for well located, high quality space has meant dated blocks with poor transport links have suffered, and will continue to do so as the supply of new office space increases.
Hamilton Osborne King estimates that completions in 2005 will amount to 120,000sq m (1.291 million sq ft), double the level of 2004. A further 200,000sq m (2.152 million sq ft) is planned for 2006 and early 2007, almost half of which will be in Dublin 2. Over 60,000sq m (645,834sq ft) of the space to be completed next year has been pre-let.
Jones Lang LaSalle report that, after a decrease in take up at the start of the year, the office market began to rally in the second quarter. However, other agents, like DTZ Sherry Fitzgerald, dispute this, saying activity was strong in the first quarter.
Estimates of take up by year-end from the agents vary from 139,355-185,806sq m (1.5-2 million sq ft). These figures will depend on the finalisation of high profile signings by Matheson Ormsby Prentice at Riverside IV on Sir John Rogerson's Quay, by Hibernian on Upper Hatch Street and Anglo Irish Bank Private Banking at Connaught House.
Commercial agents also differ on the vacancy rate, with estimates ranging from 10-15 per cent. Jim O'Reilly of DTZ says the vacancy rate stood at 15.8 per cent at the end of September and may increase by year-end. "Despite more activity and greater take up, the vacancy rate may increase due to an increase in supply."
Over 50 per cent of vacant space was in the suburbs, half of which has been lying vacant for at least two years and a fifth for four years.
The IT sector has staged a comeback. DTZ Sherry FitzGerald puts the sector's take-up figure at over 20 per cent, with the financial sector a close second, followed by the services sector.
Its prediction for 2006 is that the market will not return to full equilibrium, given the supply coming on stream. This will increase the vacancy rate, particularly in the suburbs, and will put pressure on landlords to redevelop existing buildings.
Jim O'Reilly remains optimistic: "Despite a few high volume office developments reaching practical completion in 2006, which will have an impact on the vacancy rate, the outlook for 2006 is positive. There would appear to be renewed confidence filtering through the office market which has been reflected in continuing demand for high quality accommodation.
"Enquiry levels remain strong and we have seen the emergence of new sub-markets in the south docks and north-east inner city which will hopefully come to fruition in 2006."
